SOLVED

16) A company had a debt-to-equity ratio of 1.55 before issuing convertible bonds. This ratio included $500,000 in equity. The company issued convertible bonds. The value reported for the bonds on the balance sheet is $180,000 and the conversion rights are valued at $22,000. Required: After the issuance of the convertible bonds, what is the value of the debt-to-equity ratio? 17) LMN Company reported the following amounts on its balance sheet at July 31, 2018:  Liabilities Convertible bonds payable, $10,000,000 face value 9%, due July 31, 20199,909,091  Equity Contributed surplus—common stock conversion rights300,000 Preferred shares, no par, 3,000,000 shares authorized, 10,000 outstanding1,100,000 Common shares, no par, 1,000,000 shares authorized, 180,000 outstanding4,500,000  Additional information 1. The bonds pay interest each July 31. Each $1,000 bond is convertible into 10 common shares. The bonds were originally issued to yield 10%. On July 31, 2019, all the bonds were converted after the final interest payment was made. LMN uses the book value method to record bond conversions as recommended under IFRS. 2. No other share or bond transactions occurred during the year. Required: a. Prepare the journal entry to record the bond interest payment on July 31, 2019. b. Calculate the total number of common shares outstanding after the bonds’ conversion on July 31, 2019. c. Prepare the journal entry to record the bond conversion. 18) LMN Company reported the following amounts on its balance sheet at July 31, 2019:  Liabilities Convertible bonds payable, $10,000,000 face value 8%, due July 31, 20199,818,182  Equity Contributed surplus—common stock conversion rights300,000 Preferred shares, no par, 3,000,000 shares authorized, 10,000 outstanding1,100,000 Common shares, no par, 1,000,000 shares authorized, 180,000 outstanding4,500,000  Additional information 1. The bonds pay interest each July 31. Each $1,000 bond is convertible into 5 common shares. The bonds were originally issued to yield 10%. On July 31, 2019, all the bonds were converted after the final interest payment was made. LMN uses the book value method to record bond conversions as recommended under IFRS. 2. No other share or bond transactions occurred during the year.  Required: a. Prepare the journal entry to record the bond interest payment on July 31, 2019. b. Calculate the total number of common shares outstanding after the bonds’ conversion on July 31, 2019. c. Prepare the journal entry to record the bond conversion. 19) On January 1, 2019, Wayward Co. issued a $22 million, 8%, 6-year convertible bond with annual coupon payments. Each $1,000 bond was convertible into 35 shares of Wayward’s common shares. Moonbeam Investments purchased the entire bond issue for $22.7 million on January 1, 2019. Moonbeam estimated that without the conversion feature, the bonds would have sold for $21,013,098 (to yield 9%). On January 1, 2020, Moonbeam converted bonds with a par value of $8.8 million. At the time of conversion, the shares were selling at $30 each.  Required: a. Prepare the journal entry to record the issuance of convertible bonds. b. Prepare the journal entry to record the conversion according to IFRS (book value method). c. Prepare the journal entry to record the conversion according ASPE (market value method). 20) Which method is used under ASPE to account for compound instruments? A) Fair value method. B) Proportional method. C) Book value method. D) Zero common equity method.